Strategy Development Crafting Acquisition’s Foundation Hugo A. Bonuccelli trategy development launches the acquisition cycle and sets the conceptual framework for everything that follows. A well-thought-out strategy can ensure an acquisition’s success, while a poorly-conceived strategy can result in its failure. Just as an architect must design a foundation to support a building’s ultimate form and function, so an acquisition strategist must design a strategy to support the needs and wants of a procurement’s users. However, matching a strategy to an acquisition’s ultimate purpose can be a complex undertaking. Far from considering the tangibles of concrete and steel, the procuring organization may be faced with nebulous user expectations, evolving technology solutions, uncertain market conditions, or the like. What activities can draw order from these uncertainties? What makes these activities strategy, and not planning? S The acquisition strategy is the base on which subsequent activities rest. Getting it right means that the acquisition has taken its first step toward success. How can the results be judged successful? In other words, where do you start, and how do you know when you’re done? To answer these questions, it helps to have a working definition of “strategy.” According to Webster’s (10th ed.), it is “the art of devising or employing plans or stratagems toward a goal.” This definition implies an important distinction: The development of an acquisition strategy is not, strictly speaking, a discipline but rather an art. It relies on the informed use of judgment to craft an acquisition approach that results in the highest probability that the acquisition will achieve its stated goals. As such, the acquisition strategy sets the foundation for the subsequent acquisition cycle stages set forth in “Acquisition in the Large: Looking Ahead at Every Stage” on p. 4 of this issue. As the authors note, strategy development and planning are two consecutive stages, but the end of one • Success depends on understanding three elements—need (what the organization is acquiring), purpose (what will constitute success), and context (what factors will shape the strategy). • You can anticipate stakeholder wishes to some extent, but ultimately there is no substitute for communication and consensus among all stakeholders. • The right expertise is crucial. Even the most insightful evaluation scheme will fail if the acquisition team cannot distinguish a strong proposal from marketing fluff. • The strategy must support the success of the overall program, not just the competition for award. Acquisition Strategies 13 Questions to Ask at the Start • Is this a one-time agency buy, a multiyear project, or a competition to establish a new government-wide acquisition contract program? • What is the procurement’s dollar value? • Can commercially available products and services meet the requirements? • How many stakeholders are there? • Are the requirements subject to policy directives or regulatory restraints? • Is software or hardware development or customer-specific configuration needed? • Are there government-specific requirements? If so, are they well-defined, or must they be negotiated with input from industry? • How many potential suppliers are there, and how dynamic is the marketplace? and the beginning of the other are often nearly indistinguishable. Returning to the building analogy, an architect’s design is reflected in a set of blueprints, just as the acquisition strategy is reflected in acquisition planning. And just as the architectural design is a guide for blueprint revisions as construction progresses, so the acquisition strategy is a guide for in-course decisions and adjustments to the planning blueprint throughout the acquisition cycle. So how does a procuring organization begin to craft a strategy? Naturally, the level of effort can depend on the particular acquisition. In some cases, formal strategy development isn’t necessary; rather, documenting the judgment of an experienced acquisition official at the beginning of acquisition planning will suffice. In others, it can involve the extensive efforts of many people over several years. In all cases, however, success depends on understanding and continuously addressing three elements—need (what the organization is acquiring), purpose (what will constitute success), and context (what factors will shape the strategy). Many acquisitions stumble because the procuring organizations omitted or glossed over some aspect of these elements. Some efforts misfire by underestimating or overestimating what users need, while others never quite get a handle on their definition of value. Still others fail to deeply understand the larger environment in which the 14 acquisition takes place, and thus fail to obtain the value that would have constituted true success. Only when the acquisition team has addressed all these critical elements can it shape a strategy foundation that can reliably support a successful acquisition. How much is enough? Inherent in effective and appropriate strategy development is the issue of how much effort it will take to get there. As shown in Figure 1, too little effort increases the risk of churn, inadequate competition, successful protest after award, or other negative consequences, up to and including the acquisition’s complete failure or redo. Too much effort wastes time and resources and stretches the acquisition cycle unnecessarily. Effective Competition Too Little STRATEGY • Churn and inefficiency • Inadequate competition • Successful protest • Failure or redo Too Much • Churn and inefficiency • Excessive cost • Lengthened cycle Figure 1. The extremes of strategy development. The strategy should be just enough to obtain value, which typically means enough to set up and sustain an effective competition. Thus, the short answer would seem to be “Enough is as much as it takes to obtain value.” However, given that competition is the primary means of achieving value in most acquisition activities, a more focused answer is, “Enough is as much as it takes to set up and sustain an effective competition.” The competition’s type and intensity depend on the particular acquisition—what and how much is being acquired and how the program goals define value. “Enough” also relates to the potential return on an investment of time and resources in strategy development, which again depends on the specific acquisition’s requirements and context. The sidebar “Questions to Ask at the Start” gives a short checklist of considerations that can justify devoting a larger or smaller effort on strategy development. As a rule, the procuring organization must balance the time and resources spent on strategy development against the acquisition’s overall dollar value and the likelihood that fine-tuning the strategy will yield better value. Generally, the higher the stakes (and the more severe the consequences of failure), the more likely a well-conceived acquisition strategy can leverage those stakes to set up and sustain an effective competition. For example, an acquisition intended to supply hundreds of government agencies over 10 years is more likely to attract vigorous competition than one that represents a single agency for half that period. The effort devoted to strategy development should represent an acceptable fraction of the value expected from the competition the acquisition is creating. How much depends on the savings or other benefit the organization can derive from that program. Strategy development for a major government-wide acquisition contract (GWAC) could take years and cost tens of millions, yet represent only a fraction of the billions in potential savings. Conversely, a smaller strategy effort can be excessive if good planning gives the organization comparable value. An intuitive process In some ways, deciding what is enough is largely intuitive. You would need little or no strategy development for a simple box buy (purchase of commercial software or off-the-shelf hardware) or for a followon purchase in an ongoing project (using line items in an established fixed-price contract). For these, a strategy of “follow established procedures” is often sufficient. It also makes sense that as the acquisition’s complexity increases, so does the return on any investment in strategy. This is true regardless of the acquisition’s goal—whether to get the best price on a large quantity of products or the best technical solution for a complex agency-wide problem. Virtually all GWAC efforts would benefit from investing time and resources in strategy development, as would most multiyear projects large enough to attract the attention of Congressional oversight bodies. Business case value The value proposition for any acquisition is reflected in its business case. For capital expenditures by a federal agency, the busiAcquisition Strategies ness case typically conforms to the Office of Management and Budget’s (OMB) Circular A-11 Exhibit 300, but other forms are possible and procedures can vary across agencies. The procuring organization can complete the business case at various points within either strategy development or planning, but it is important to begin conceptualizing the value of the acquisition in business case terms from the start regardless of the business case’s “official” timetable and format. Doing so will focus strategy development on value, ensure an appropriate definition of success, and help determine the necessary level of effort. What is success? It seems obvious that success is best defined in terms of the acquisition stakeholders’ needs and expectations. Failing to establish this basis for success can expose an acquisition to potentially fatal risks. As “Risk Analysis: Making It Formal” on p. 19, of this issue describes, this risk is avoidable, but not without conscious effort. Astute, experienced acquisition personnel might have the judgment to anticipate stakeholder wishes to some extent, but ultimately there is no substitute for communication and consensus among all stakeholders. Success also requires concrete goals that everyone understands and agrees on. Knowing the stakeholders Knowing stakeholders is critical in establishing clear, comprehensive goals that can drive strategy development, and serve as the basis for a successful acquisition. An outreach plan is an effective mechanism for identifying and understanding the various acquisition stakeholders and their desired or needed degree of involvement. Such a plan also helps in first establishing clear consensus goals and then supporting strategy development. The plan’s success depends on being persistent and patient—the need for stakeholder involvement might be greater than the stakeholders’ desire to actually get involved. As Figure 2 shows, stakeholders fall into four general groups. The obvious first group—and the one to identify right away—consists of the acquisition personnel who will be involved in the acquisiAcquisition Strategies tion’s design and execution. In the users group are those who will use what is being acquired. In the oversight group are the officials or bodies, both internal and external to the acquisition organization, whose interest is the acquisition’s alignment with policy or regulatory considerations. Finally, the relevant industry players—those who could supply the goods or services being acquired—form the fourth group. Outreach need not occur for all groups simultaneously. The initial and most critical communication is between the first two groups, the acquisition staff and user community. Such communication sets the Acquisition Personnel • Management • Subject matter experts • Contracting officers • Legal staff • ... Users • Project management • Operations • Other contracting • Agency staff • ... Communication and Consensus Oversight • Agency executives • OMB • GAO • Congress • ... Industry • Individual vendors • Trade associations • Professional groups • Advisory bodies • ... Figure 2. Identifying stakeholders. The acquisition team must identify four stakeholder groups. The most critical communication is between acquisition personnel and the users. stage by establishing foundational program requirements—identifying the types of goods or services and defining any special conditions. Knowledge of the user community is invaluable in determining what problems the acquisition will solve and what users want. Are they looking for cost savings, schedule improvements, or operational flexibility? Is their purpose to satisfy a policy directive or to smooth the transition to upgraded technology? What performance characteristics do they expect? And so on. It is important to establish a way of communicating with the user community throughout the acquisition cycle. For acquisition within an agency, routine progress meetings between acquisition and project staff might suffice. For a more complex acquisition that serves multiple organizations, communication should be more formal, such as an acquisition oversight council, advisory board, or user group. Groups such as these can offer insights that will help in forming acquisition goals and strategy and support the generation of detailed acquisition requirements. The acquisition team must keep this group or its representatives informed of activity progress (at a high level) throughout evaluation, as long as such information does not compromise source selection integrity. The team might even consider inviting such a group to receive a briefing on the evaluation results and offer independent advice to the source selection authority to support the award decision. Establishing clear goals After the procuring organization identifies and understands the user community’s preliminary needs and expectations, it can begin to form explicit acquisition goals. This is a good first step that can point toward the broad outline of a strategy or at least bound strategy alternatives. At this point, input from the other two stakeholder groups can be beneficial. Skilled acquisition staff might be competent in incorporating published guidance, but for larger acquisitions, establishing a two-way communications path with overseers can ensure success and prevent unpleasant surprises. Goals from users might not, for example, reflect Federal Acquisition Regulation dictates or the latest policy guidance. Oversight groups are much more in tune with evolving policy and can be an excellent source of new goals or of realistic limitations on existing goals. Again, it is good to keep the communications channel open through the evaluation stage. A communications mechanism for industry feedback is also valuable in helping goal formation, particularly if the industry or its products and services are in a state of flux. The industry group can act as a reality check for the acquisition team. The communication with this group is not to have industry help set the acquisition’s goals. Rather, it is to understand the state of practice in the commercial world, the capabilities and products available to meet the goals, and any real-world conditions that might render the acquisition’s goals unrealistic. 15 At this point, the acquisition team might not see a need to involve the industry group. They might feel that their expertise and feedback from the user community might provide enough knowledge, or that they can fill any gaps with insights from market research. For some efforts, this might be enough. However, as activities progress from goal formulation to strategy analysis, larger acquisitions will benefit from a more structured gathering of industry feedback through mechanisms such as requests for information, meetings with standing industry advisory councils, and public forums organized for this purpose. After the team gathers relevant stakeholder inputs, it is ready to encapsulate the definition of success in a set of agreed-on program goals that capture two aspects of value: • what constitutes value to the user (best price, best schedule, special requirements, operations environment, or some combination of these) and • what sustains value (fixed prices, sustained competition environment, low program overhead, or some combination of these) The team should clearly articulate goals that are both manageable (not too many) and achievable. The goals should be comprehensive and focused enough to drive an effective strategy and serve as the basis for judging the acquisition’s success. What is the environment? The final question before crafting the actual strategy addresses the environment within which the acquisition effort is happening—an environment that could inhibit or empower the effort’s success. Deeply understanding the relationships within this larger environment early in the cycle is crucial. Sometimes missing just one aspect can significantly limit success or even doom an acquisition to failure. For example, if a team plans to establish an agencyspecific acquisition contract, but does not know or consider that policy-makers have mandated use of a GWAC, the team can expend time and resources on a strategy that oversight pressure ends up reversing. To know the environment, the procuring 16 organization must know itself, the prospective users, and the marketplace. Resources and constraints Acquisition teams operate within larger organizations, which can impose process, budget, and schedule constraints. The team must thoroughly understand these, as well as how acquisition decisions will be made, and who will approve such decisions. It must identify the expertise available in-house or from outside stakeholders or consultants. Significantly, it must also look beyond the acquisition stages leading to award, and into the post award program operations environment, and understand what operations capabilities exist or will need to be developed. It is critical to identify and address any resource or capability gaps early on. Even the most insightful proposal evaluation scheme will fail if the acquisition team cannot distinguish a strong proposal from marketing fluff, or if it sets up an unsustainable contract administration or operations environment. The users Knowing the users means knowing not only what they want to acquire but also how they intend to use it. This knowledge should flow seamlessly if the team has established solid user communications during goal setting. At this time, the team should solidify its knowledge of • the project, system, or technology requirements; • desired operational characteristics, such as how users define ease of use; Strategy Winners and Losers Winners • Conceptualize value in business case terms. • Establish an outreach plan to identify and understand stakeholders and their degree of involvement. • Clearly articulate manageable, achievable goals. • Look beyond the award to identify what operations capabilities will be needed. • Understand key marketplace capabilities and trends. • Involve contracting and legal staff in strategy development. • Have enough in-house expertise to distinguish industry hype from realistic claims. • Incorporate performance measures for evaluation and contractor management. • Understand when and how the program will seek competition. • Include risk mitigation measures. • Think as an offeror would to try to defeat the strategy. • Get final consensus among key stakeholders. Losers • Spend too much or too little on strategy development. • Define success in terms other than stakeholders needs and expectations. • Under- or overestimate user needs. • Fail to consider policy, legal or regulatory constraints or oversight direction. • Define value too narrowly. • user policy considerations, such as small business participation goals; and • missions that the acquisition must support. Inadequate knowledge of any of these could lead to downstream headaches. For example, the acquisition might involve a high volume of products and services that a range of potential suppliers could offer using well-understood technology. This tends to increase the likelihood of vigorous price competition. At the same time, however, ordering and inventory management could be decentralized, or users might expect to have access to contractor performance data on a quarterly basis. Not knowing these conditions and thus omitting support requirements in the solicitation could result in a strategy that achieves the desired price points, but leaves users with an excessive administrative burden. The marketplace Marketplace knowledge fleshes out the big picture, identifying factors that could affect strategy. The team should understand Acquisition Strategies key commercial capabilities, trends that affect technology and services and those who supply them, and trends in government contracting. Examples include but are not limited to the Internet and its myriad implications, evolving concepts in information technology system architectures, or new service delivery models such as managed or outsourced services. Critical industry trends might be consolidations, shifts from traditional to emerging market leaders, and the changing role of small businesses. In considering the government contracting environment, the team must be aware of how policy changes, mandates, and legislative reform can potentially alter the rules of acquisition or refocus the emphasis of acquisition activities. Market research is the usual starting point, but supplementing this with formal outreach to industry and oversight entities is often useful for larger acquisitions. Acquisition staff and users embroiled in day-to-day concerns may not be aware or have only a rudimentary understanding of emerging technologies or state-of-the-art practices. The outreach to industry and oversight entities enables the team to understand all the marketplace influences. Again, this information should flow easily if the team has successfully established a stakeholder outreach plan. Expertise is critical at this point. The team must have enough in-house expertise to distinguish industry hype from realistic claims. Acquiring the latest technology may be tempting, but new technology is often touted as a solution long before it is truly ready to support real-world missions. The benefits of the latest service delivery model might accrue more to the service provider than to the service user. Pending corporate mergers could limit or change the nature of the competition. Knowing the marketplace, on the other hand, gives the team a way to enhance competition, encourage the participation of the industry’s value leaders, and make the acquisition a must-have for potential suppliers. Let the crafting begin Once the acquisition team knows its stakeholders, goals, and environment, it is ready to identify the range of possible alternatives and begin crafting the actual strategy. The sidebar “Strategy Winners and Losers” lists some proven successful strategies and those the team would do well to avoid. As the list of winners implies, any strategy must support the success of the overall program, not just the competition for award. From this first principle, the main objective is to maximize value (as the program goals define it) over the life of the project or program by achieving the most effective competition and the most advantageous contract terms that the environment can support. The team must think about what this objective implies, both in awarding the contract and in applying performance-based contracting principles to the project or program. Type ? • Fixed-price • Cost reimbursable • Cost plus • Incentive • ... Vehicle ? Form ? • Multiple award schedule • Agency contract • GWAC • Agreement • ... • Indefinite delivery/indefinite quantity • Labor hour • Time and materials • Line item • ... Process ? • Sealed bid • Negotiation • Performance • Sole source • ... Specification ? • Requirements • Statement of work • Statement of objectives • Terms and conditions • ... Figure 3. The nuts and bolts of contracting options. Understanding the meaning of government contracting terms and their implications for practitioners requires special training and expertise. Acquisition Strategies In building the strategy, the team must choose from the many nuts and bolts of government contracting options, as Figure 3 shows. Fully understanding the meanings of government contracting terms and the implications in practice can be a challenge without specialized training and experience. For this reason, involving contracting and legal staff in strategy development can be invaluable. Although team members without this background can think of many creative ways to achieve acquisition goals, only these experts can ensure that all the strategy components align and that the final result stays within the limits of contracting law and regulations. By operating this way, the team can curtail the risk of subsequent difficulties. Contracting officers and legal staff, for example, are more qualified to identify issues that could enable a losing offeror to win a post award protest. Specifying requirements appropriately A major crafting task is to determine the most unambiguous method for specifying user requirements. Alternatives include a statement of objectives, statement of work, technical specification, or some combination. As the sidebar “Statement of Objectives?” describes, there can be confusion about what kind of specification is most suitable. Regardless of the specification type, the team must build in performance measures for the evaluation. For goods and services, this might be specifying the technical standards the provider must comply with and the technical performance indicators that the procuring organization will measure. When describing the solution rather than specific goods or services, the focus should be on performance characteristics rather than design details. Incorporating contractor performance measures into contract terms and conditions helps crystallize the post award basis for judging contractor performance. To write sufficiently clear measures requires at least a high level understanding of the program’s concept of operations. Supporting the competition model Appropriate choices of contract type and form depend on a program’s competition model—points in the program where the procuring organization seeks the benefits of competition. Competition for a fixed-price, 17 line-item contract, for example, might establish outstanding prices as a condition of award. Most competitions for contracts that are based on labor hours, in contrast, cannot lock in as much value before contract award, since the primary points of competition are based on task orders issued after contracts have been established. In these cases, the contract award has more to do with prequalifying many competitors and setting up rules of engagement—the rules by which they will compete for task orders. The General Services Administration’s FTS2001 long distance telecommunications services program (1998–present) is an example of a highly successful fixedprice contract program. It established hundreds of thousands of fixed prices for specific telecommunications services available nationwide to any government agency in any quantity. The fixed prices were much better than what was commercially available at the time of award and remain so today. The program has also supported subsequent agency-specific competitions, leveraging the benefits of scale for its largest users. According to the Congressional record, over its first six years of operation, the program saved the American taxpayer close to $2 billion.1 Many of the same competition model considerations that apply to contracts apply as well to competitions for individual task or delivery orders. For most of these, the primary competition point occurs before order award, but larger and multiyear projects can also include competition points after award. For these larger projects, well-thought-out rules of engagement can be critical. In either case, the team must build the acquisition strategy to maximize the benefits of competition. The idea is to stimulate offerors to sharpen their pencils and offer better value. The specification might include, for example, the expected number of awards, whether that’s a fixed number or based on language such as “up to” and “not more than.” The strategy should also clearly delineate the basis for picking winners and losers. An “everybody who qualifies wins” approach can be useful to prequalify many contractors who will subsequently compete for orders, but it is never optimal and seldom effective in locking in value for fixed prices at award. 18 Statement of Objectives? The mantra “specify the outcome” has created a common misconception that performance-based contracting dictates the use of a concise, focused statement of objectives (SOO) in lieu of a detailed specification, or statement of work. This is not true. The SOO is merely one way to state requirements. All acquisitions should incorporate a performance basis, regardless of the method used to state requirements. A SOO is most suitable when the desired outcomes are straightforward, quantifiable, and unambiguous but with many potential ways to achieve them. If it is possible to specify such outcomes, the SOO can work well by empowering industry to think creatively in developing a solution and making the case for its value. This is particularly true for task order competitions. The SOO format is less useful when acquisition involves commodity or commodity-like goods and services, establishing fixed-prices or procuring fixed quantities, or establishing a new multiple award contract program. A SOO that is too general or poorly-focused can result in proposals that are not comparable on a common cost basis, require heightened evaluator expertise to judge technical merit, or make the project vulnerable to cost creep after award. Conversely, a statement of work that is too specific or specifications that are too detailed can limit the offerors’ ability to propose optimum value. Either extreme is a strategic mistake. Finally, it is useful to incorporate special policy requirements and risk mitigation elements. One example is the common policy directive to include opportunities for small and disadvantaged businesses in government contracting programs. An example of risk mitigation is to include elements that minimize the impact of industry consolidation, market instability, and the like. For a small acquisition, this gaming exercise might be purely a thought process. A larger, more complex competition, in contrast, should consider applying formal game theory to predict possible outcomes. If all the potential strategies identified require fair competition—in the dimensions sought for the desired value—the strategy is probably sound. If not, the exercise has probably identified risks that the team must address before finalizing the strategy. Getting final consensus The last step in crafting a strategy is to get the agreement of the key stakeholders identified at the start of strategy development. Consensus can involve anything from a single meeting with the project manager and contracting officer (for a routine agency purchase) to a multiyear give and take involving the acquisition oversight council, industry inputs and multiple Congressional hearings (for a major GWAC program). Regardless of the consensus-getting method, the effort spent to generate consensus is time well spent because it greatly reduces the potential for downstream snags in the program. n effective acquisition strategy addresses the full range of issues necessary to ensure value across the cycle. Those who develop it must incorporate sound professional judgment, user input, and knowledge of environmental factors. The strategy’s ultimate objective is to set up a competition that can achieve value well beyond the costs of strategy development and execution. It is the base on which subsequent activities must rest. If done right, it is the first step toward a successful acquisition. v A References Gaming the strategy To ensure that the strategy is robust, the team should try to defeat it once they draft it. This requires thinking as an offeror would. How would you approach the competition if you were an incumbent supplier, or a new supplier trying to break in? Could you maximize your probability of award with an aggressive offer and then use a loophole to lawfully increase prices or profits later? If you lose the competition, what would be the basis for your protest? 1. Making Networx Work: Countdown to the RFP for the Federal Government’s Telecommunications Program, Hearing before the Committee on Government Reform, House of Representatives, 109th Congress, 1st session, Mar. 3, 2005; www.access.gpo.gov/congress/ house/pdf/109hrg/20144.pdf. Hugo A. Bonuccelli is a senior manager at Noblis, where his interests include strategic planning, technical and operational requirements analysis, vendor qualifications analysis, request for proposal preparation, vendor management, vendor proposal evaluation, cost and price analysis, program/project management, and transition support. He received an MEng in systems engineering from the University of Virginia. Contact him at [email protected]. Acquisition Strategies
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